Lack of M&A activity hampering small companies: Barings
Confidence yet to return to markets, unlikely to do so in short term
A lack of takeover activity is holding back the smaller companies sector, which may be due to a drought available capital, the manager of a European equities fund has said.
Nick Williams, manager of the Baring Europe Select Trust, said that while access to capital for smaller companies does not appear to have been a problem in Europe, restricted access to large amounts of money for takeovers may have hampered the sector.
“We have not seen the level of takeovers I would have hoped for, which may be due to the lack of available capital,” he says, adding that other factors may have a part to play.
“Takeover activity is partly a function of confidence. I don’t think that there has been a massive rebound in confidence and that is not going to happen in the short-term unless the eurozone pulls a rabbit out of a hat.”
In terms of the outlook for Europe in general, Williams remains optimistic, saying that as long as the Asia growth story continues and the US keeps turning out positive data then it should “drag Europe up”.
However, he warned the cuts may go too far. “It remains to be seen whether the austerity programme will have the effect of tipping the area into worse recession.” he said.
Another big concern is Spain, he added, saying that if it deteriorates much further than huge costs will incurred trying to bail it out.
A recent OECD paper, Fiscal Consolidation: How much, how fast and by what means?, stated that countries globally need to reduce their debt to around 50% of GDP.
It warned, “Given the current state of the economy and the already exhausted monetary stimulus, implementing a large degree of fiscal tightening could be particularly costly.”